Segment Information

CAPCOM CO., LTD. and its consolidated subsidiaries. Years ended March 31

Digital Contents

This business develops and sells packaged and digital game content for consumer home video game platforms. It also develops (up 0.8% from the previous year), making this the fifth consecutive reach regions that were once difficult to access, so we aim to and manages games for Mobile Contents and PC Online Games. Consumer games produces creative, original content that year of growth. continue expanding global sales by focusing on catalog sales of provides recurring revenue by utilizing digital distribution. Many of these million-seller titles are used for smartphone, tablet On the other hand, the number of major new titles was Monster Hunter World: Iceborne, Monster Hunter: World, and device and PC online games, and are distributed worldwide in order to maximize earnings. down from the previous year, and this year's major title was Resident Evil 2. As a result of these efforts, we expect to increase lower priced. Package sales were 12.9 billion yen, and digital unit sales to 28.0 million units (up 9.8% compared to the Net Sales/Operating Margins Assets/ROA sales were 42.6 billion yen. Together, they resulted in Consumer previous year), net sales to 60.9 billion yen (up 11.7% from the sales of 55.5 billion yen (down 27.8% from the previous year). previous year), and for the digital sales ratio to remain in the 40.3 45.5 43.1 However, the percentage of high-margin catalog title sales and mid-70% range. digital sales improved, bringing operating income to 24.1 billion 28.1 31.0 25.8 yen (up 3.4% from the previous year). This marked the third Mobile Contents Sub-segment consecutive year of increased operating income and drove up This fiscal year (ended March 31, 2020), we introduced new titles 18.9 the operating margin to 40%. including and , an alliance 82,982 16.6 Sengoku BASARA: Battle Party 74,141 58,704 59,942 For , we continue to consider Consumer business title released together with GungHo Online Entertainment, 66,691 growth as one of the keys to achieving our medium-term business Inc., and both performed well. In addition, Monster Hunter: 61,641 54,109 53,117 goals. Our initiatives are to (1) strengthen digital sales, (2) bolster Riders, which was launched in February, got off to a good start. our title lineup through the continued execution of our 60-month As a result, net sales increased to 4.4 billion yen (up 91.3% from 2017 2018 2019 2020 2017 2018 2019 2020 and 52-week maps, and (3) awaken dormant intellectual properties. the previous year). Net Sales (million yen) Operating Margin (%) (Years ended March 31) Assets (million yen) ROA (%) (Years ended March 31) Under (1), the prevalence of digital selling has made it In the future, we will continue to explore a wide range of Note: Effective from the beginning of the fiscal year ended March 31, 2019, Capcom has applied “Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No. 28, February 16, 2018). Figures for the previous fiscal year have undergone retrospective application. possible to implement measures such as limited-time sales, possibilities, including cultivating existing titles, developing new increasing flexibility in pricing and expanding the impact of titles using our intellectual properties, and forming alliances SWOT Analysis S: Strengths W: Weaknesses O : Opportunities T: Threats Utilization of Non-Financial Capital marketing. We utilize our existing intellectual properties (IP) in with companies in Japan and other countries. We will work on Human Capital Production Capital addition to major titles and additional content, and remake or development in the mobile field and accumulating operational World-class development and Concentration in specific technological capabilities genres About 2,300 in-house developers Global penetration of digital rerelease past titles on current-generation hardware, in order to know-how. We will also promote technical research on development storefronts on game consoles, Own many original popular titles Insufficient hit mobile titles smartphones, and PCs create sales opportunities and increase the digital sales ratio. In of apps utilizing the 5G next-generation wireless standard. (intellectual capital) and management expertise Highly efficient proprietary terms of (2), we have been working to establish an efficient Next fiscal year we expect net sales of 6.0 billion yen (up game development engines SW World-class development development system for core titles by preparing 60-month and 36.4% from the previous year) owing to the full-year contribution equipment 52-week maps since March 2015. We will establish a system that of titles introduced this year and the introduction of new alliance Decreased competition in Consumer game presence Intellectual Capital Social Capital allows us to release major titles on a regular basis. Finally, for titles overseas. Consumer business OT diminished by diversity of Own many original popular titles Partnerships with developers Global market expansion with entertainment options (intellectual capital) in Japan and other countries (3) we seek to revive dormant intellectual properties for which spread of digital content sales Low barriers for entry into User trust in the Capcom brand Partnerships with mobile we have not recently released new titles by increasing the Arrival of subscription-based and mobile contents market, large online game companies, other new platforms number of competitor firms primarily in Asia number of our developers. Mobile contents market expansion Next fiscal year, we will release Resident Evil 3, a popular title from the past remade with the latest technology, as well as additional major titles in the second half of the year to solidify our brand globally. The focus on digital sales has made it possible to

Operating Results for This Fiscal Year and Outlook for the Next Fiscal Year

Consumer (Package + Digital) sub-segment This fiscal year (ended March 31, 2020), new title Monster Hunter World: Iceborne sold 5.2 million units. Together with focusing business development on high-margin digital sales, this drove Capcom Consumer Sales (billion yen) improvements in business results. Sales for Resident Evil 2 and 5, which were released the previous year, also 76.9 65.2 continued to grow from an expanding user base. 60.9 Additionally, Monster Hunter: World, which was released 35.9 55.5 49.2 15.9 two years earlier, continued to sell, bringing the cumulative total 38.3 12.9 for the title to 15.7 million units. This performance, along with healthy sales of other catalog titles, gave a boost to revenue. 33.7 Moreover, the growth in our library of titles due to a steady 41.0 42.6 45.0 new release pipeline in recent years along with successful holiday 26.9 15.5 season discount measures pushed up digital sales to 20.55 million units (up 34.3% from the previous year). As a result, this year’s 2017 2018 2019 2020 2021 (Plan) Package Digital package and full-game download sales totaled 25.5 million units (Years ended March 31)

73 CAPCOM INTEGRATED REPORT 2020 Value Creation Story Medium- to Long-Term Latest Creative Report Foundation for Financial Analysis and Growth Strategy Sustainable Growth (ESG) Corporate Data

(up 0.8% from the previous year), making this the fifth consecutive reach regions that were once difficult to access, so we aim to year of growth. continue expanding global sales by focusing on catalog sales of On the other hand, the number of major new titles was Monster Hunter World: Iceborne, Monster Hunter: World, and down from the previous year, and this year's major title was Resident Evil 2. As a result of these efforts, we expect to increase lower priced. Package sales were 12.9 billion yen, and digital unit sales to 28.0 million units (up 9.8% compared to the sales were 42.6 billion yen. Together, they resulted in Consumer previous year), net sales to 60.9 billion yen (up 11.7% from the sales of 55.5 billion yen (down 27.8% from the previous year). previous year), and for the digital sales ratio to remain in the However, the percentage of high-margin catalog title sales and mid-70% range. digital sales improved, bringing operating income to 24.1 billion yen (up 3.4% from the previous year). This marked the third Mobile Contents Sub-segment consecutive year of increased operating income and drove up This fiscal year (ended March 31, 2020), we introduced new titles the operating margin to 40%. including Sengoku BASARA: Battle Party and TEPPEN, an alliance For Capcom, we continue to consider Consumer business title released together with GungHo Online Entertainment, growth as one of the keys to achieving our medium-term business Inc., and both performed well. In addition, Monster Hunter: goals. Our initiatives are to (1) strengthen digital sales, (2) bolster Riders, which was launched in February, got off to a good start. our title lineup through the continued execution of our 60-month As a result, net sales increased to 4.4 billion yen (up 91.3% from and 52-week maps, and (3) awaken dormant intellectual properties. the previous year). Under (1), the prevalence of digital selling has made it In the future, we will continue to explore a wide range of possible to implement measures such as limited-time sales, possibilities, including cultivating existing titles, developing new increasing flexibility in pricing and expanding the impact of titles using our intellectual properties, and forming alliances marketing. We utilize our existing intellectual properties (IP) in with companies in Japan and other countries. We will work on addition to major titles and additional content, and remake or development in the mobile field and accumulating operational rerelease past titles on current-generation hardware, in order to know-how. We will also promote technical research on development create sales opportunities and increase the digital sales ratio. In of apps utilizing the 5G next-generation wireless standard. terms of (2), we have been working to establish an efficient Next fiscal year we expect net sales of 6.0 billion yen (up development system for core titles by preparing 60-month and 36.4% from the previous year) owing to the full-year contribution 52-week maps since March 2015. We will establish a system that of titles introduced this year and the introduction of new alliance allows us to release major titles on a regular basis. Finally, for titles overseas. (3) we seek to revive dormant intellectual properties for which we have not recently released new titles by increasing the number of our developers. Next fiscal year, we will release Resident Evil 3, a popular title from the past remade with the latest technology, as well as additional major titles in the second half of the year to solidify our brand globally. The focus on digital sales has made it possible to

Consumer (Package + Digital) sub-segment This fiscal year (ended March 31, 2020), new title Monster Hunter World: Iceborne sold 5.2 million units. Together with focusing business development on high-margin digital sales, this drove Capcom Mobile Contents Sales (billion yen) improvements in business results. Sales for Resident Evil 2 and , which were released the previous year, also 6.0 continued to grow from an expanding user base. 4.4 Additionally, Monster Hunter: World, which was released 4.1 two years earlier, continued to sell, bringing the cumulative total 3.8 for the title to 15.7 million units. This performance, along with healthy sales of other catalog titles, gave a boost to revenue. 2.3 Moreover, the growth in our library of titles due to a steady new release pipeline in recent years along with successful holiday season discount measures pushed up digital sales to 20.55 million units (up 34.3% from the previous year). As a result, this year’s 2017 2018 2019 2020 2021 (Plan) package and full-game download sales totaled 25.5 million units (Years ended March 31)

CAPCOM INTEGRATED REPORT 2020 74 Segment Information

CAPCOM CO., LTD. and its consolidated subsidiaries. Years ended March 31

Arcade Operations

We operate amusement facilities, primarily Plaza Capcom arcades, in Japan. These arcades are predominantly in large commercial complexes. We have diligently followed a scrap-and-build policy to maximize our efficiency in arcade operations, and have been hosting various events designed to attract families and female customers.

Net Sales/Operating Margins Assets/ROA

9.9 10.0 15.9 8.6 14.2 7.9 12,096 11.8 11,050 10.8 10,231 9,525 7,730 7,624 6,988 7,471

2017 2018 2019 2020 2017 2018 2019 2020

Net Sales (million yen) Operating Margin (%) (Years ended March 31) Assets (million yen) ROA (%) (Years ended March 31)

SWOT Analysis S: Strengths W: Weaknesses O : Opportunities T: Threats Utilization of Non-Financial Capital

Specialize in opening stores in large Low sales growth rate due to Human Capital Production Capital shopping centers to secure a stable small number of carefully Internal store management staff High foot traffic of large customer base selected facilities Part-time workers hired locally shopping centers Thorough scrap-and-build strategy Little synergy with Developers that design and focused on investment efficiency to proprietary contents construct facilities ensure sustainable earnings SW

Cultivate market, including Entertainment diversification Intellectual Capital Social Capital merchandise sales and OT due to rapid growth of Store management know-how Our relationships with local restaurants utilizing our games for smartphones cultivated over 36 years residents intellectual properties Change in business climate in Intellectual properties (characters Arcade game makers around Increase new customers through conjunction with tax hike and worlds) that can be rolled out in the world esports collaboration Diminished customer appeal food, drinks and prizes due to COVID-19 Services utilizing virtual reality (VR) technology

Operating Results for This Fiscal Year and Outlook for the Next Fiscal Year

This fiscal year (ended March 31, 2020), relaxation of restrictions store closures. in the Law on Control and Improvement of Amusement and For the full year, owing to the contribution of new stores Entertainment Businesses that took effect in June 2016 continued and improved profitability at existing stores, net sales were up to provide favorable conditions for a sustained recovery in market 3.5% from the previous year, bringing segment net sales to size. Chara Cap, which sells character merchandise, contributed 12.096 billion yen (up 9.5% from the previous year) and operating to results through an increase in the number of customers income to 1.211 billion yen (up 10.5% from the previous year), resulting from long public holidays, as well as through increased so that both sales and profit were up year over year. sales per customer due to the draw of prizes featuring specific In the next fiscal year, we forecast a decrease in both sales characters and popular products. and profit with same store sales down 18%, net sales coming in As for stores, Plaza Capcom Ikebukuro and the Company’s at 10.5 billion yen (down 13.2% from the previous year) and first showroom, Capcom Store Tokyo (Shibuya), were opened in operating income at 0 billion yen. This is due primarily to all stores Tokyo, and Plaza Capcom Fujiidera was opened in Osaka. This (excluding Capcom Net Catcher Cap Tore, the online crane game) brought the total number of stores to 40, up three from the being closed in April in response to the spread of COVID-19, as previous year. Capcom Store Tokyo is performing particularly well as shortened operating hours and curtailed cabinet operations well, owing to its capturing of inbound demand thanks to its after the stores were reopened. prime location and much-talked-about original merchandise. As for the number of stores, Capcom will continue opening In March, same store sales for the month fell by approximately stores in locations with strong customer appeal. We plan to open 30% from the previous year due to the impact of people staying three more stores, bringing the total number to 43. home to prevent the spread of COVID-19 and some temporary

75 CAPCOM INTEGRATED REPORT 2020 Value Creation Story Medium- to Long-Term Latest Creative Report Foundation for Financial Analysis and Growth Strategy Sustainable Growth (ESG) Corporate Data

Amusement Equipments

Here, we leverage the contents from our home video games. The Pachinko & Pachislo (PS) sub-segment is involved in the development, manufacture and sales of frames and LCD devices for gaming machines as well as software, creating synergy between businesses.

Net Sales/Operating Margins Assets/ROA 31.9 31.6 30.3

16,169 16,856 13,100 10,002

7,803 6,420 6,533 15.9 3,422

2017 2018 2019 2020 2017 2018 2019 2020

Net Sales (million yen) Operating Margin (%) (Years ended March 31) Assets (million yen) ROA (%) (Years ended March 31)

SWOT Analysis S: Strengths W: Weaknesses O : Opportunities T: Threats Utilization of Non-Financial Capital

High quality development capabilities Inadequate sales/development Human Capital Production Capital cultivated through home video games capabilities Internal developers in charge of Manufacturing plant for Leveraging of rich in-house contents planning and development machines Video game arcades and pachinko/pachislo parlors all SW over Japan

Market recovery via Declining operator and hall Intellectual Capital Social Capital introduction of popular OT investment appetite Own many original popular Partnerships with major sales machines Long-term market stagnation titles (intellectual capital) companies Demand generated by installing new Market fluctuations resulting Development technology supporting Administrative organ related cabinets compliant with rule changes from changes to the pachislo certification rules to pachislo machine permits Entertainment and and licenses Amusement Trades Act and certification rules

Operating Results for This Fiscal Year and Outlook for the Next Fiscal Year

This fiscal year (ended March 31, 2020), new pachislo machine Under these circumstances, we will review our development Onimusha: Dawn of Dreams was launched by the Pachinko & system with an eye toward releasing machines to impress hall Pachislo (PS) sub-segment, selling 20,000 units. operators and end-users. We will continue to (1) develop machines Changes in the market environment resulting from such not dependent on speculation and that feature a variety of things as changes to methods of pachislo machine model playing styles and entertaining video elements that utilize content certification continued to have an impact. Because of the absence from our popular Consumer content, while (2) working on of the loss on valuation and loss on suspension recorded the securing a strong sales network and improving machine quality previous year, and the favorable orders received for Onimusha: through an alliance with a major sales company. Dawn of Dreams, net sales were up substantially to 6.533 billion In the next fiscal year, we will develop multiple models yen (up 90.9% from the previous year), and the segment returned simultaneously, but out of consideration of the progress of to profitability, with operating income of 2.085 billion yen. model certification tests and hall closings due to COVID-19, we There are signs of a coming recovery in the market in the plan to release one model and sell 15,000 units (5,000 units less next fiscal year driven by demand for replacing machines built to than the year under review). As a result, we expect net sales to the old standard along with improved sentiment for machines fall to 4.5 billion yen (down 31.1% from the year under review) meeting the current standard. and to record 1.7 billion in operating income (down 18.5% from However, Capcom will keep an eye on market trends, the year under review). including closings in conjunction with the spread of COVID-19 on top of the investment required for introducing current standard machines at halls.

CAPCOM INTEGRATED REPORT 2020 76 Segment Information

CAPCOM CO., LTD. and its consolidated subsidiaries. Years ended March 31

Other Businesses

Based on our Single Content Multiple Usage strategy of developing game content for various media, we pursue a variety of copyright-related business opportunities including publishing (walkthrough and strategy guides as well as game art books) and licensing (movies, animated television programs, music CDs, and merchandise). Furthermore, we are concentrating on the esports business as well.

Net Sales/Operating Margins Assets/ROA 48.2 131.4 46.5 3,018 2,575 2,338 98.2 2,083

31.5 4,718 18.0 3,600

20.5 31.3 617 554 2017 2018 2019 2020 2017 2018 2019 2020

Net Sales (million yen) Operating Margin (%) (Years ended March 31) Assets (million yen) ROA (%) (Years ended March 31)

SWOT Analysis S: Strengths W: Weaknesses O : Opportunities T: Threats Utilization of Non-Financial Capital

Synergetic effect from multifaceted Low return on sales from Human Capital Production Capital use of rich contents licensed products Planners skilled at content development Legal framework related to Brand value increased through high Legal staff in charge of alliance intellectual properties in exposure across various mediums agreements and other arrangements Japan and other countries High profitability Merchandise manufacturing SW companies

Expansion into film, animation, Direct competition with other Intellectual Capital Social Capital comics, stage productions, OT companies’ contents as a result Own many original popular titles Event organizing companies orchestral performances and of globalization (intellectual capital) that engage in joint planning other media Brand business (strategy for Relationship with movie studios, Expansion of user base through maximizing value of intellectual including those in Hollywood esports tournaments and other events properties) Relationship with pro gamers utilizing our intellectual properties Relationship with local governments

Operating Results for This Fiscal Year and Outlook for the Next Fiscal Year

This fiscal year (ended March 31, 2020), we worked to improve our properties (content) and rolling them out across various mediums, brand value through such efforts as developing merchandise utilizing including movies, animated television programs, theatrical popular IPs, including apparel and figurines, and implementing productions, and events. We will also promote esports as a safe the limited-time-only attraction Biohazard the Extreme at Universal form of entertainment during the COVID-19 pandemic due to its Studios Japan. compatibility with online play. In the next fiscal year, the Capcom In the esports market, which continues to grow worldwide, Pro Tour, which has been held annually since 2014, will be taken we held tournaments for League: Pro-JP, our premier fully online as Capcom Pro Tour Online 2020. This will make it league in Japan, as well as Street Fighter League: College-JP 2019 possible for players from all over the world to participate from and Rookie’s Caravan 2019 for scouting amateurs. We also held a home; moreover, by livestreaming it in multiple languages, we professional league tournament in the U.S. and a U.S. vs. Japan plan to further expand the audience globally. competition there as well. We will also continue to actively leverage our intellectual As a result of these efforts and growth of the licensing business, properties (content), based on our Single Content Multiple Usage net sales increased to 3.018 billion yen (up 17.2% from the previous strategy, including with the streaming animated television program year), but operating income decreased to 544 million yen (down Dragon’s Dogma, as we work to increase the value of our core 32.9% from the previous year) due to ongoing upfront investments brands through adaptations and collaborations. in the esports business. We expect net sales to increase to 3.1 billion yen (up 2.7% We will continue to leverage our strength of being able to from the previous year) and operating income to be 700 million reap substantial synergetic benefits with the Consumer Games yen (up 28.7% from the previous year), for an increase in both businesses by diversifying the use of our rich library of intellectual sales and profit.

77 CAPCOM INTEGRATED REPORT 2020